Adani Wilmar
Adani Wilmar is coming out with a 100% book building; initial public offering (IPO) of 16,56,60,829 shares of Rs 1 each in a price band Rs 218-230 per equity share.
Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on January 27, 2022 and will close on January 31, 2022.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 1 and is priced 218 times of its face value on the lower side and 230 times on the higher side.
Book running lead manager to the issue are J.P.Morgan India, BofA Securities India, Credit Suisse Securities (India), ICICI Securities and HDFC Bank.
Compliance Officer for the issue is Darshil Lakhia.
Profile of the company
The company is one of the few large FMCG food companies in India to offer most of the primary kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses and sugar. Commodities, such as edible oils, wheat flour, rice, pulses and sugar, account for approximately 66% of the spend on primary kitchen commodities in India. The company offers a range of staples such as wheat flour, rice, pulses and sugar. Its products are offered under a diverse range of brands across a broad price spectrum and cater to different customer groups. The company’s portfolio of products spans across three categories: (i) edible oil, (ii) packaged food and FMCG, and (iii) industry essentials. A significant majority of its sales pertain to branded products accounting for approximately 73% of its edible oil and food and FMCG sales volume for the financial year 2021 (excluding industry essentials which were offered on a non-branded basis).
The company operates an integrated manufacturing infrastructure to derive cost efficiency across its different business lines. Its integration includes the following means: (i) backward and forward integration. Most of its crushing units are fully integrated with refineries to refine crude oil it produces in-house. It further derive de-oiled cakes from crushing and use palm stearin derived from palm oil refining to manufacture oleochemical products, such as soap noodles, stearic acid and glycerin, and FMCG, such as soaps and handwash; (ii) integration of manufacturing capabilities of edible oils and packaged foods at the same locations. Such integrated manufacturing infrastructure has enabled it to share supply chain, storage facilities, distribution network and experienced manpower among different products and reduce the overall costs for processing and logistics.
Proceed is being used for:
Funding capital expenditure for expansion of existing manufacturing facilities and developing new manufacturing facilities (Capital Expenditure).
Repayment/prepayment of borrowings.
Funding strategic acquisitions and investments.
General corporate purposes.
Industry overview
The Indian packaged food retail market, estimated at Rs 6,00,000 crore in FY 2020 contributes only 15% to the total food and grocery retail market estimated at Rs 39,45,000 crore in FY 2020. While the Indian food retail remains dominated by unbranded products such as fresh fruits and vegetables, loose staples, fresh unpackaged dairy and meat, the packaged food market is growing at almost double the pace of the overall category and is expected to gain a market share of 17% by FY 2025 from a share of 14% in FY 2015. Health concerns and limitation in movement due to COVID -19 have accelerated the growth of packaged food products which offer consistent and assured quality along with convenience. However, the penetration of packaged food is limited in the Indian households. Annual per capita spend on all categories of packaged food in India is estimated to be Rs 4,650, much lesser as compared to China at Rs 16,000 and the USA at more than Rs 1,12,500.
The edible oil retail market is estimated to be Rs 1,79,500 crore in FY 2020 and is expected to grow at a CAGR of 6% in the coming 5 years. It has been growing steadily at a CAGR of 6% in the last five years. The share of unbranded play is consistently dropping and is estimated to shrink to ~ 10% by FY 2025. The edible oils retail market includes the consumption through HoReCa segment and end consumer. In FY 2021, while the HoReCa segment has been adversely affected by COVID-19, the consumer segment has witnessed a steady growth. While consumption in terms of volumes has only marginally degrown in FY 2021, the value growth is a result of price increase in the international markets. The branded edible oil market is estimated to be around Rs 1,56,000 crore and is expected to grow faster than the overall category gaining a lion’s share of close to 90% of the total market in terms of value in the coming five years. It is estimated that close to 75% of the total edible oil available in terms of volume is retailed as a branded product.
Pros and strengths
Differentiated and diversified product portfolio: The company focus on offering a wide portfolio of packaged consumer staples, including edible oil, wheat flour, rice, pulses, besan, soya chunks and sugar, to consumers. It is one of the few large FMCG food companies in India to offer most of the primary kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses and sugar. It offers a range of staples such as wheat flour, rice, pulses and sugar. It also offers ready-to-cook soya chunks and khichdi. The edible oil products it offers include soyabean oil, palm oil, sunflower oil, rice bran oil, mustard oil, groundnut oil, cottonseed oil, blended oil, vanaspati, specialty fats and a series of functional edible oil products with distinctive health benefits, each catering to various price points. It has included several value-added products, including ready-to-cook products and functional edible oil products, to its product portfolio in order to increase its market share. In particular, it places a significant emphasis on providing foods with intended health benefits, such as functional edible oil products and fortified food. In addition to a wide variety of edible oil products and packaged foods, it has recently launched FMCG, including soaps, handwash and sanitizers. Its diversified product portfolio has enabled it to reduce reliance on a single category of products.
Strong raw material sourcing capabilities: The company’s raw material sourcing capabilities are supported by its market standing and extensive business networks. It imports a significant portion of raw materials, and its market leadership has facilitated it to source raw materials from top global suppliers from the international markets. It was India’s largest importer of crude edible oil as of March 31, 2021, which provided it with bargaining power to source better quality raw materials on favorable commercial terms. Wilmar International, its promoter group company, is the largest palm oil supplier in the world and provides it with additional competitive edge as it need not depend on third party suppliers for sourcing of palm oil. In the financial year 2021, approximately 30% of its imported raw materials by value was sourced from Wilmar Group. It also benefit from the market intelligence on price movements in the international market from Wilmar Group to manage its price risk associated with imports of raw materials.
Extensive pan-India distribution network: The company’s pan-India presence is supported by a robust distribution infrastructure to ensure the availability of its products. As of September 30, 2021, it had 88 depots in India, with an aggregate storage space of approximately 1.8 million square feet across the country to ensure availability of its products. Apart from its presence in general trade outlets and modern trade outlets, it has been utilizing Fortune Foods, its exclusive website to showcasing the entire basket of products available under the Fortune brand, and Fortune Online, which is a one-stoponline shop for all the products under the Fortune brand. Currently, customers in 25 cities can place orders through Fortune Online. Furthermore, it has recently launched Fortune Mart, which are franchised physical stores to showcase its Fortune branded products and which also serve as fulfillment centers for home delivery of products ordered through Fortune Online.
Focus on environmental and social sustainability: The company is committed to maintaining environmental and social sustainability. Its operating entities in India procured approximately 95.6% of crude palm oil which is traceable up to mills in the calendar year 2020. Its nine palm oil refineries in India are all certified by the Roundtable on Sustainable Palm Oil (“RSPO”). It has implemented solar power at five of its plants in India with an aggregate installed capacity of 3,040 kilowatts. It has installed zero liquid discharge systems at eight of its plants in India, which allow it to recover and reuse wastewater from its manufacturing process. It is in the process of establishing zero liquid discharge system at another plant in India.
Risks and concerns
Depend significantly on imports of raw materials/finished goods: Although much of the company’s raw materials/finished goods is imported from global suppliers which are typically reliable suppliers, it is nevertheless possible for an inadequate supply of raw materials/finished goods of sufficient quality to be caused by the default of the supplier, by import restrictions imposed by the Indian government or by export restrictions imposed by governments of foreign countries where it import its raw materials/finished goods from, or for any other reason, which could hamper its operations. For instance, the Indian government imposed restrictions on imports of refined palm oil from Malaysia in early 2020, and while its operations were not affected as it import crude palm oil (which was not restricted by the Indian government) rather than refined palm oil from Malaysia, any similar restrictions imposed by the Indian government on the import of crude palm oil could have affected its operations. Further, it is reported that Indonesia may stop exporting crude palm oil in the future. Additionally, it has to estimate the transportation time for imports of raw materials/finished goods (especially raw materials/finished goods from distant countries) several months in advance of the actual time that they are required by it, and any error in its estimate or any change in market conditions by the time the raw materials/finished goods arrive may lead to a shortfall in raw materials/finished goods.
Rely heavily on existing brands: The company’s product portfolio spans various brands including its flagship brand, Fortune, and King’s, Bullet, Raag, Avsar, Jubilee, Fryola, Alife, Alpha and Aadhaar. Its brands and reputation are among its most important assets and serve in attracting customers to its products in preference over those of its competitors. Continuing to develop awareness of its brands, through focused and consistent branding and marketing initiatives, among retail consumers and institutional customers, is important for its ability to increase its sales volumes and its revenues, grow its existing market share and expand into new markets. Decrease in product quality due to reasons beyond its control or allegations of product defects, even when false or unfounded, could tarnish the image of the established brands and may cause consumers to choose other products. Its reputation and brands could also be affected by socially motivated groups, which could lead to a decline in its sales volume. Further, the considerable expansion in the use of social media over recent years has compounded the impact of negative publicity.
Extensive government regulation: The company’s operations are subject to extensive government regulation and it is required to obtain and maintain a number of statutory and regulatory permits, certificates and approvals under central, state and local government rules in India, including approvals under the Food Safety and Standards Act, 2006 (the “FSSA”), Water (Prevention and Control of Pollution) Act, 1974, environmental related approvals, Legal Metrology Act, 2006, factory licenses and labour and tax related approvals, generally for carrying out its business and for each of its manufacturing units. For instance, the provisions of the FSSA along with relevant rules and regulations are applicable to it and its products, which sets forth requirements relating to the license and registration of food businesses and general principles for food safety standards, and manufacture, storage and distribution of food products. Contravention of the requirement to obtain a license or carrying a business without obtaining a license under the FSSA is punishable with imprisonment for a period of up to six months and fines. Subsequent contraventions are punishable with twice the punishment during the first conviction and higher monetary and other penalties including cancellation of license.
Competition: The industries in which the company operates are intensely competitive. It compete with several regional and local companies, as well as large multi-national companies that are larger and have substantially greater resources than it does, including the ability to spend more on advertising and marketing. Due to low entry barriers, it also faces competition from new entrants, especially at rural and semi-rural areas, who may have more flexibility in responding to changing business and economic conditions. Competition in its businesses can be based on, among other things, pricing, innovation, perceived value, brand recognition, promotional activities, advertising, special events, new product introductions and other activities. It is difficult for it to predict the timing and scale of its competitors’ actions in these areas. It expects competition to continue to be intense as its existing competitors expand their operations and introduce new products.
Outlook
Adani Wilmar is an FMCG food company offering most of the essential kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses, and sugar. The company also offers a diverse range of industry essentials, including oleo-chemicals, castor oil and its derivatives, and de-oiled cakes. The company's products are offered under a diverse range of brands across a broad price spectrum and cater to different customer groups. The company's product portfolio is categorized into (i) edible oil, (ii) packaged food and FMCG, and (iii) industry essentials. The company’s raw material sourcing capabilities are supported by its market standing and extensive business networks. It imports a significant portion of raw materials, and its market leadership has facilitated it to source raw materials from top global suppliers from the international markets. It operates an integrated manufacturing infrastructure to derive cost efficiency across its different business lines. On the concern side, the company’s operations are subject to various hazards associated with the production of chemical and other products, such as the use, handling, processing, storage and transportation of hazardous materials, as well as accidents such as leakage or spillages of chemicals. Its business is dependent upon its ability to manage its manufacturing facilities, which are subject to various operating risks, including those beyond its control, such as the breakdown and failure of equipment or industrial accidents and severe weather conditions and natural disasters.
The issue has been offered in a price band of Rs 218-230 per equity share. The aggregate size of the offer is around Rs 3611.41 crore to Rs 3810.20 crore based on lower and upper price band respectively. On the performance front, The company’s total income increased by 24.96% to Rs 37195.65 crore for the financial year 2021 from Rs 29766.98 crore for the financial year 2020, primarily due to an increase in revenue from operations. Profit for the year increased by 57.89% to Rs 727.64 crore for the financial year 2021 from Rs 460.87 crore for the financial year 2020. The company strives to expand its distribution network in order to further penetrate both urban and rural areas and increase its sales. It will continue to increase the coverage of its retail outlet. It aims to expand its online reach in India from current 25 cities to 100 cities in the next few years. It also aims to have more than 40 Fortune Mart stores opened across India in the next few years. It is seeking to acquire brands and businesses from food and FMCG companies, which will to expand its product and brand portfolios increase its food and FMCG manufacturing capacities and distribution access.
